Natural Gas: Changing the Geopolitics of Eastern Mediterranean and Beyond

Energy resources have always been at the center of the Arab-Israeli conflict, creating alliances and clearly influencing the policies of many nations towards the adversaries. Israel itself had a very complex relationship with its neighbors, mainly Egypt, a supplier of energy to Israel since the Camp David Accords in 1978.

In the past few years and with a stunning new announcement the last day of 2010, Israel’s energy situation has changed dramatically. With the recent major Leviathan gas discovery along with last year’s Tamar discovery, Israel enters the big energy leagues. The two are perhaps the largest purposeful gas discoveries in the world in each of the last two years and Israel is likely to play a highly enhanced regional and European geopolitical role.

Coupled with the fact that Israel has also emerged as a global leader in many high-tech industries with a direct expansion of energy usage, the country may become a trend setter in wide use of compressed natural gas (CNG) or electrical vehicles. Gas to liquids may not be far behind.

Without a question the future of Israeli energy is tied to natural gas. Starting in 2004, Noble Energy, a Houston based, relatively small but quite able in deep water, independent oil company began production of gas from the Mari field. This is the beginning of Israel’s shift towards natural gas dependency, moving away from coal and even further away from fuel oils. The Noble partnership consists of Noble Energy, Delek Drilling, Avner Oil Exploration, and Delek Investments.

Mari and Associated Gas Fields

Mari was discovered by the Noble partnership in 2000 in 796 ft (243 m) of water and 6830 ft (2082 m) total depth. The exploration well, Mari B 1, logged 550 ft of net thickness of gas in a sandstone zone. Mari is part of a group of fields in the southern offshore waters of Israel in the Pliocene stratigraphic-structural play, part of the Pleshet Basin. Current gas-in-place estimates range from 1.2 – 1.3 trillion cubic feet (Tcf). In February 2004, the field began producing gas from a production platform with 600 MMcf/d of capacity. The gas is sold to the Israel Electricity Corporation (IEC) and brought to Tel Aviv for power generation and Ashdod for power and refining. Average daily production in 2010 was 330 MMcf/d from 6 wells. Noble has stated that the field can produce up to the facility capacity of 600 MMCF/d.

There are other fields close by that can be tied back to the platform through a subsea network. Fields include Noa and its up dip neighbor, Noa South, Nir, Or, and Or South. These fields were discovered between 1999 and 2000. With the exception of Nir, the other fields are deepwater prospects between 2,300 – 2,550 ft. These prospects hold an additional 1 TCF of potential recoverable gas volumes, of which 70% is from the Noa fields. Because of its size, there are plans to tie Noa back to the Mari platform.

Tamar

The first big discovery came in early 2009, when Noble announced a 7 Tcf field in a northwestern offshore block. Noble and its partners drilled the exploration well in early 2009 and discovered a large gas field, Tamar. They quickly followed with an appraisal well, which increased the field’s initial gas in place from 5 Tcf (initial estimate) to 8.4 Tcf (current estimate, independently confirmed by Netherland, Sewell, and Associates Inc.). Tamar is located at a total depth of 16,000 ft deep under 5,500 ft of water, 90 km off of Israel’s northwestern coast.

Noble’s development strategy is still in progress. Currently, Israel’s gas demand is around 350 MMcf/d. If production from Tamar can reach 1 Bcf/d, which it can easily do, this would nearly triple current demand for natural gas. Transportation of this gas becomes the next issue and it will be addressed below.

The Leviathan Discovery

But the best was yet to come. On the last days of 2010 Noble Energy and partners announced that the Leviathan field, of the north coast of Israel contained at least 16 Tcf of recoverable gas, which would make the field one of the largest offshore natural gas fields ever. Such giant discovery, which may be followed by other discoveries, would certainly make Israel a prime candidate as a natural gas exporter. The United States Geological Survey has estimated that the Eastern Mediterranean may hold 200 Tcf of ultimately recoverable natural gas.

The Economic Implications

Israel is a country that has had a tumultuous history and its energy demand has always been in the immediate background. Since the nation’s establishment in 1948, the country has fought six wars against its neighbors. With each war, and more recently, with each act of terrorism, one would expect Israel to descend into darkness, becoming ever more difficult to transcend. Yet Israel has continued to expand its economy and make technological advancements that revolutionized high-tech industries, agricultural products, and the defense establishment. Through a lasting peace with Egypt (1979) and Jordan (1994), as well as a commitment to peace with the Palestinians, Israel has ushered a prosperous future.

There is little question that Israel is the most stable democracy in the region and it is the only country there that does not limit free speech. It has an independent judicial system with a strong rule of law, one that does not shy away from convicting a former president for violations, as it happened last month.

There is also a thriving market economy and with the country’s growth in the past decade, the government has reduced its role to allow for market competition. The main industries include high-tech equipment, software, telecommunications, metal products, and military technology and equipment. Israel has the fifth highest GDP per capita in the Middle East, trailing behind four oil-rich nations. Countries such as Saudi Arabia, Iran, and Egypt fall well behind in this economic indicator. The potential of natural gas exports has huge implications for Israel, both in reducing its energy imports, its dependence on potential adversaries and in shear economic benefit. Furthermore, few countries are more capable to actually do it and at the same time more likely gain considerable benefit from using natural gas in the transportation sector

The Geopolitics

Israel’s success in the energy arena is a game-changer in geopolitics. First, the least worrisome eventuality would be a conflict with its northern neighbor, Lebanon which is already claiming that the Leviathan prospect extends into its waters and is planning for an exploration program off its coast. Further west, Noble already holds the only lease in Cyprus waters, which could prove success in the outer reaches of the Levantine Basin. Israel and Cyprus are cooperating to define the borders of the continental shelf under the rules of the UN Convention on the Law of the Sea. A country has certain rights, which includes the right to explore and exploit natural resources, within a distance of 200 nautical miles. The closest distance between Israel and Cyprus is 140 nautical miles and, according to international law, the boundary is set at the midway between the two countries.

Natural gas may bring Israel and Cyprus (and by extension Greece) into a natural alliance, not just for the economic benefit. In a classic example of the “enemy of my enemy is my friend” the recent breech between Israel and Turkey brings the Greeks closer to Israel. A natural gas pipeline from the Israeli finds to Cyprus would be an obvious gesture of the rapprochement. Such a pipeline, which could benefit Cyprus, now in the process of making a decision to import natural gas as a highly expensive LNG, can become the vehicle for LNG liquefaction and then exports of LNG to a natural gas starving Europe, suffocated by Russian natural gas imports. An alternative substantial source of natural gas to Europe can provide what the ill-fated Nabucco pipeline is unlikely to ever deliver.

Two LNG trains on Cyprus each of 7 million metric tons of LNG will amount to about 23 percent of Russian exports to Western Europe, which were 3.3 Tcf in 2009.

Israeli natural gas, as almost everything else in that part of the world, has many more dimensions than the obvious.